Judgment :- 1. The petitioner is a company. It is an assessee to income-tax on the files of the 2nd respondent. In this O.P. the controversy is regarding waiver or reduction of interest under S.215 (4) of the Income-tax Act (in short, the Act) for the year 1977-78. By Ext. P1 assessment order dated 13-3-1980, the Income Tax Officer levied interest under S.217(1A) of the Act in the sum of Rs. 12,83,538/. By Ext.P2, dated 15-5-1980, the assessee stated that S.217 (1A) is not attracted and in the alternative, also prayed that the assessment may be revised deleting the interest charged under S.217(1A) of the Act in exercise of the powers under R.40 of the Income-tax Rules. The assessee had taken up Ext. P1 order of assessment in appeal. The Commissioner of Income-tax (Appeals) (in short, the Commissioner) modified Ext. P1 assessment order by his order dated 14-1-1981. The appellate order was given effect to by the Income-tax Officer, the 2nd respondent by passing a consequential order, Ext.P3, dated 16-2-1981, wherein he levied interest under S.215 of the Act in the sum of Rs. 10,44,383/-. Ext. P2 petition filed by the assessee for waiver of interest was considered by the Income-tax Officer. He passed Ext. P4 order, dated 13-5-1981. Therein he referred to Ext. P3 consequential order, passed by him dated 16-2-1981, assessee's petition for waiver of interest dated 15-5-1980 (Ext. P2), and also the proceedings of the Inspecting Assistant Commissioner of Income-tax, dated 8-5-1981. He waived a sum of Rs. 3,80,460/-under R.40(1) and R.40(5) of the Income Tax Rules and reduced the interest under S.215 of the Act to Rs. 6,63,923/. The petitioner assessee filed a revision (Ext. P5) before the Commissioner of Income-tax, Ernakulam, dated 28-9-1981. Exts. P6 and P7 are further communications filed before the Commissioner in Ext. P5 revision. By Ext. P8 order, dated 13-4-1983, the Commissioner of Income-tax (1st respondent) substantially affirmed Ext. P4 order passed by the Income-tax Officer. But on the basis of some marginal relief given in the revisional order, the Income-tax Officer was directed to re-work the interest leviable under S.215 of the Act on the basis of relief afforded in Ext. P8. The revision was allowed in part. In this O. P. the challenge is against Ext. P1 assessment order, Ext. P3 (consequential order), Ext. But on the basis of some marginal relief given in the revisional order, the Income-tax Officer was directed to re-work the interest leviable under S.215 of the Act on the basis of relief afforded in Ext. P8. The revision was allowed in part. In this O. P. the challenge is against Ext. P1 assessment order, Ext. P3 (consequential order), Ext. P4 (the order passed by the assessing authority) retaining the interest under S.215 of the Act in the sum of Rs. 6,63,923/- and Ext. P8 order passed in revision by the 1st respondent substantially affirming Ext. P4. 2. In support of the challenge against the orders passed by respondents 1 and 2, counsel for the petitioner, Mr. P.K. Kurien, raised many pleas. It was argued: (1) In this case S.217 (1A) of the Income-tax Act is inapplicable. The levy of interest was under S.217(1A). By communication dated 18-7-1980 the Income-tax Officer informed the petitioner that the. interest is levied under S.215, though wrongly stated under S.217 (1A). This is unauthorised. The assessment order served on the assessee dated 13-3-1980 will show that the levy itself was under S.217(1A). (2) The petition filed by the assessee under R.40 of the Income Tax Rules was not properly considered. Ext. P4 order passed by the Income Tax Officer and Ext. P8 revisional order will show that the matter has been considered under R.40(1), 40 (4) and 40 (5) of the Rules. The Income-tax Officer, waived the interest after the period after one year from the date of filing of the return of income. He has proceeded on the basis that the imposition of interest for one year is compulsive. This is illegal. (3) In passing Ext. P4, the Income-tax Officer has not looked into R.40 (4) at all. No relief was given on that score. The reference to R.40(4) by the Commissioner in Ext. P8 has not effectively meted out justice to the petitioner. (4) Ext. P4 order passed by the 2nd respondent (Income-tax Officer) expressly refers to the proceedings of the Inspecting Assistant Commissioner dated 8-5-1981. That is item No.3 in the reference to proceedings, on the basis of which the order was passed. The reference to the Inspecting Assistant Commissioner of Income-tax is in accord with R.40(5) of the Rules. The petitioner was not heard before the Inspecting Assistant Commissioner passed the proceedings dated 8-5-1981. That is item No.3 in the reference to proceedings, on the basis of which the order was passed. The reference to the Inspecting Assistant Commissioner of Income-tax is in accord with R.40(5) of the Rules. The petitioner was not heard before the Inspecting Assistant Commissioner passed the proceedings dated 8-5-1981. The petitioner had no notice or knowledge about the proceedings of the Inspecting Assistant Commissioner dated 8-5-1981; nor was he asked to explain about the instructions given by the Inspecting Assistant Commissioner dated 8-5-1981 and afforded an opportunity to explain. It is not known how the Inspecting Assistant Commissioner has arrived at 30% reduction. There is no basis for this. If the petitioner was afforded an opportunity by the Inspecting Assistant Commissioner before he rendered the proceedings dated 8-5-1981, or was at least informed about the proposal either by the Inspecting Assistant Commissioner or by the Income Tax Officer, he would have offered his explanation, which will convince that the entire interest levied by the Income Tax Officer should be waived. In the absence of notice or hearing by the Inspecting Assistant Commissioner before rendering the proceedings dated 8-5-1981, the petitioner was prejudiced. There is a failure of the principles of natural justice. (5) The Commissioner of Income-tax has proceeded on the mistaken impression that the price of tea in March is Rs. 12.52. It was the average price of the year. & (6) In the case of other producers of tea, the interest levied was completely waived in similar circumstances. There is no reason why it was not so done in the case of the petitioner. 3. The Revenue has controverted the above pleas. The Revenue filed a detailed counter affidavit dated 3-10-1986. In particular, it is stated that the plea of the petitioner based on R.40 (5) cannot be considered since he did not move the Inspecting Assistant Commissioner invoking R.40 (5) of the Income Tax Rules. It has also been stated that the 2nd respondent waived the interest under R.40 (1) and 40 (4) only.Whether the waiver of interest was called for under R.40 (5) of the Income-tax Rules does not arise for consideration, since the assessee did not move the Inspecting Assistant Commissioner under R.40(5) of the Income-tax Rules. Reference to R.40 (5) is incorrect and incompetent. Reference to R.40 (5) is incorrect and incompetent. Advertence to R.40 (5) in the order is wrong and the Income Tax Officer has exercised his discretion only under R.40 (1) and 40 (4). It should be stated that the specific averment of the petitioner that in the case of other producers of tea, interest levied was waived in full in similar circumstances, covered by Ground G, was not denied in the counter affidavit dated 3-10-1986. 4. The arguments on both sides covered a wide range. But for the purpose of disposing of this O.P., it is not necessary for us to adjudicate all the questions raised and argued before us. We shall consider only point No. (4) urged by the assessee to the effect that the Inspecting Assistant Commissioner in rendering the proceedings dated 8-5-1981 (referred to as item No. 3 in Ext.P4) did not give notice to the assessee; nor did he hear the assessee before passing that order and so there is a violation of the principles of natural justice. All other pleas raised before us by counsel for the assessee and counsel for the Revenue are left open. 5. S.215(1) and 215(4) of the Income-tax Act are as follows: " (4) In such gases and under such circumstances as may be prescribed, the Income-tax Officer may reduce or waive the interest payable by the assessee under this section." Rule 40 of the Income Tax Rules provides as follows: "40. Waiver of interest.-The Income-tax Officer may reduce or waive the interest payable under S.215 or S.217 in the cases and under the circumstances mentioned below, namely (1) When the relevant assessment is completed more than one year after the submission of the return, the delay in assessment not being attributable to the assessee. (2) Where a person is under S.163 treated as an agent of another person and is assessed upon the latter's income. (3) Where the assessee has income from an unregistered firm assessed under the provisions of clause (b) of S.183. (4) Where the previous year is the financial year or any year ending about the close of the financial year and large profits are made after the 1st March (or the 15th March in cases where the proviso to S.211 applies) in circumstances which could not be foreseen. (4) Where the previous year is the financial year or any year ending about the close of the financial year and large profits are made after the 1st March (or the 15th March in cases where the proviso to S.211 applies) in circumstances which could not be foreseen. (5) Any case in which the Inspecting Assistant Commissioner considers that the circumstances are such that a reduction or wavier of the interest payable under S.215 or S.217 is justified." In this case we are concerned with S.215(4) read with R.40 of the Income Tax Rules, to dispose of the argument regarding absence of notice of hearing by the Inspecting Assistant Commissioner. Counsel for the Revenue stressed that Rule. 40(5) travels far, beyond S.215(4) of the Income Tax Act, that the statute has given discretion only to the Income Tax Officer to waive or reduce the interest and in so far as R.40(5) envisages that it is open to the Inspecting Assistant Commissioner to consider whether reduction or waiver of the interest payable under S.215 is justified, is really unauthorised. So in this case the waiver or reduction of interest as per Ext.P4 and Ext.P8 orders should be deemed to be only under S.215(4) read with R.40(1) to (4) of the Incometax Rules. The consideration of the matter in R.40(5) of the Income-tax Rules was uncalled for and should not be taken as having been considered at all. This plea should fail for more reasons than one. It was argued that R.40(5) is ultra vires since.it travels beyond S.215(4) of the Act. Firstly the petitioner has not challenged the vires of R.40(5) of the Income Tax Rules. In this case we have to proceed cm the basis that in filing the petition (Ext.P2) under R.40 of the Income Tax Rules, the petitioner invoked all the sub rules - Sub rule (1) to (5) of R.40. The officer also proceeded on that basis and referred the matter to the Inspecting Assistant Commissioner of Income-tax. We perused through the files made available to us by the counsel for the Revenue. The officer has referred the matter to the Inspecting Assistant Commissioner with his recommendations. The Inspecting Assistant Commissioner considered the matter and has given his own decision dated 8-5-1981. Subsequently, the Income Tax Officer passed Ext.P4 proceedings. Therein the proceedings of the Inspecting Assistant Commissioner is referred to as item No. 3. The officer has referred the matter to the Inspecting Assistant Commissioner with his recommendations. The Inspecting Assistant Commissioner considered the matter and has given his own decision dated 8-5-1981. Subsequently, the Income Tax Officer passed Ext.P4 proceedings. Therein the proceedings of the Inspecting Assistant Commissioner is referred to as item No. 3. The Officer has also stated that a sum of Rs. 3,80,460/- was waived under R.40(1) read with R.40(5) of the Income Tax Rules. In Ext. P8 revisional order passed by the Commissioner of Income Tax, he has referred to the waiver of interest under R.40(5) of the Rules in Para.7 and 11. So it is idle to contend that in passing Exts.P4 and P8 orders, R.40(5) was not invoked at all. This is against the recitals contained in Exts. P4 and P8 orders, as also the relevant files which positively show that the Income Tax Officer referred the matter to the Inspecting Assistant Commissioner, who rendered his decision and on the basis of which Ext.P4 proceeding was passed. Secondly, it is not open to the Revenue to contend that R.40(5) of the Income Tax Rules is ultra vires or unauthorised. See Assistant Commissioner of Commercial Taxes (Asst.) v. Dharmendra Trading Co. (AIR 1988 SC 1247) Para.S. The plea of the Revenue that it is not open to the petitioner to rely on R.40(5) of the Income-tax Rules or that the matter should be adjudicated without reference to R.40(5) of the Income-tax Rules, cannot be accepted in the circumstances. 6. Ext.P4 order, passed by the Income Tax Officer, as also Ext.P8 revisional order passed by the Commissioner of Income-tax, proceeded only on the basis that the power vested in the Inspecting Assistant Commissioner under R.40 (5) of the Income Tax Rules was also exercised. In exercising the powers under R.40 of the Income Tax Rules, the Income Tax Officer is exercising a quasi judicial function. A judicial exercise of discretion is necessary to find out what interest should be charged or whether any interest at all should be charged and what is the extent to which the reduction or waiver of interest is called for. It depends upon the facts and circumstances of each case. The Income Tax Officer is exercising a quasi judicial function in that behalf. It depends upon the facts and circumstances of each case. The Income Tax Officer is exercising a quasi judicial function in that behalf. So also, in cases where the Inspecting Assistant Commissioner of Income Tax "considers" the matter under R.40 (5) of the Rules, he is performing a quasi judicial function. The order passed by the Income Tax Officer under R.40 should be a speaking order. It should contain reasons. So also the proceedings of the Inspecting Assistant Commissioner in exercising the powers under R.40 (5) of the Rules should be a speaking order. It should contain reasons. The power so conferred on the Income Tax Officer and the Inspecting Assistant Commissioner to reduce or waive the interest conferred by the statute is one coupled with a duty and in any event it should be exercised fairly and reasonably. It is so vested in the said Officers for the purpose of being used for the benefit of persons who are specifically pointed out and who are, subject to the fulfilment of the conditions, entitled to call for its exercise, in order to mitigate them from the hardship resulting from the operation of S.215(1) of the Act. It is no doubt a discretionary statutory power. But it will have to be exercised in cases where the persons, for whose benefit it is conferred, call for its exercise, provided, the conditions for the exercise thereof are fulfilled. The decision of the Gujarat High Court in Patel Engineering Co. Ltd. v. C. B. Rathi (151 ITR 542) is instructive on this point and has our full concurrence. See also Commissioner of Income-tax v. Cochin-Malabar Estates Ltd. (97 ITR 466 Ker.). 7. We are of the view that it is open to an assessee to move the Inspecting Assistant Commissioner of Income Tax praying for relief under R.40 (5) but in the context of S.215(4) and R.40, it is not obligatory for him to do so. The Income Tax Officer, who is enjoined to exercise the "discretion" under R.40, can refer the matter to the Inspecting Assistant Commissioner to consider the matter from the angle or perspective of R.40 (5), and obtain appropriate orders from him on that score and then pass the final orders. The Income Tax Officer, who is enjoined to exercise the "discretion" under R.40, can refer the matter to the Inspecting Assistant Commissioner to consider the matter from the angle or perspective of R.40 (5), and obtain appropriate orders from him on that score and then pass the final orders. In this case, the Income Tax Officer himself has moved the Inspecting Assistant Commissioner to consider the matter from the stand point of R.40(5) and so the plea that the petitioner did not move the Inspecting Assistant Commissioner is of no consequence. Even an administrative order or decision in matters involving civil consequences, has to be made consistently with the rules of natural justice State of Orissa v. Dr. (Miss) Binapani Dei (AIR 1967 SC. 1269). The rule has been made applicable to administrative enquiries also. Every authority quasi judicial, or administrative or executive should act fairly, reasonably and in a just manner i.e. in accord with the principle of natural justice when the result of the exercise of the power is likely to affect any person or visit him with civil consequences. See A. K. Kraipak v. Union of India (AIR 1970 SC 150) and Swadeshi Cotton Mills v. Union of India (AIR 1981 SC 818). It should be remembered that "doing what is right may still result in unfairness, if it done, in the wrong way" as observed by Lawton L. J. in Maxwell's case (1974 Q.B. 523) and so, notice and hearing are essential before an adverse order is passed against a person. So, a person, who is likely to be affected by a decision rendered either by the Income Tax Officer or by the Inspecting Assistant Commissioner should be afforded an opportunity before rendering a decision. If it is not so done, it will be violative of the principles of natural justice and is unfair. There is no suggestion in the section or in the Rules to deny the right of an affected person to be heard and so S.215(4) of the Act and R.40 of the Rules should be interpreted as implying to preserve such a right. There is no suggestion in the section or in the Rules to deny the right of an affected person to be heard and so S.215(4) of the Act and R.40 of the Rules should be interpreted as implying to preserve such a right. See Baldev Singh v. Slate of Himachal Pradesh (AIR 1987 SC 1239 at p. 1241) and State of Haryana v. Ram Kishan (AIR 1988 SC 1301 at p. 1303) Admittedly in this case, before the Inspecting Assistant Commissioner rendered his proceedings dated 8-5-1981, referred to in Ext.P4 as item No.3, the petitioner-assessee was not given any notice or an opportunity to be heard. We hold that such a decision rendered by Inspecting Assistant Commissioner, dated 8-5-1981, is unfair and void. It is violative of the principles of natural Justice. The order passed by the Income Tax Officer, Ext.P4, relying on the aforesaid decision of the Inspecting Assistant Commissioner, dated 8-4-1981, is equally infirm. The petitioner urged this ground in Ext. P5 memorandum of revision filed before the Commissioner of Income-tax as ground No. (4). The Commissioner of Incometax, in passing Ext. P8 order, has not considered this aspect pointedly. Ext. P8 revisional order, affirming Ext. P4, is also tainted in view of the fundamental infirmity of absence of notice and hearing by the Inspecting Assistant Commissioner before rendering his decision, dated 8-5-1981, which was also the basis of Ext.P4 order. The failure to afford an opportunity to the petitioner by the Inspecting Assistant Commissioner is a fundamental infirmity. Without affording such an opportunity the Income Tax Officer has no jurisdiction to render the final order Ext. P4. The defect cannot be cured by the mere fact that it was affirmed, or varied in part, by Ext. P8 revisional order. The decisions of this Court in Ponkunnam Traders v. Additional Income-tax Officer (83 ITR 508) affirmed by the Division Bench in Addl. Income-tax Officer v. Ponkunnam Traders (102 ITR 366) and the recent decision of this Court in Anandakrishnan v. Oriental Fire & General Insurance Co. Ltd. (1988 (2) KLT 159) go to show that the illegality in the proceedings of the Inspecting Assistant Commissioner, which formed the basis of Ext. p4 order, cannot be cured of obliterated either by Ext. P8 revisional order or otherwise. Ltd. (1988 (2) KLT 159) go to show that the illegality in the proceedings of the Inspecting Assistant Commissioner, which formed the basis of Ext. p4 order, cannot be cured of obliterated either by Ext. P8 revisional order or otherwise. It should be also noticed that though the absence of notice and hearing by the Inspecting Assistant Commissioner was pointedly raised before the Commissioner of Income-tax, the said matter was not adjudicated by him in rendering Ext. P8 order. In this view of the matter, we hold that Ext. P4 order, passed by the Income tax Officer and the revisional order passed in revision therefrom, Ext. P8 - order passed by the Commissioner of income-tax, are illegal and they are hereby quashed. The Income-tax Officer will pass fresh orders in the matter in accordance with law and in the light of the observations contained in this judgment. The O. P. is allowed. We again state that all the other contentions urged by the petitioner's counsel impugning Exts. P1, P3, P4 and P8 orders are left open. The O. P. is allowed with the above directions.